by John McGill
Once upon a time, arbitration was a good idea. Even now, in theory anyway, the idea of getting someone knowledgeable about your kind of dispute to sit in judgment of the dispute has a certain appeal. That, and the idea that arbitration, because it is such a concentrated form of dispute resolution and is presented as a way to get the dispute done in short order with less expense and less stress, all contribute to the rumored advantages of the arbitration process.
Don’t believe it! Arbitration is not any of those things and many times is exactly the opposite. It is not faster, it is not cheaper, and it is not any fairer than court; in fact, it is often not fair at all. It is a crap shoot and if you lose, you lose- Period!
First, what is arbitration? It is an alternative dispute resolution process that all parties agree to in order to resolve disputes. Critical to implementing the process, all parties must agree to it. If there is no arbitration clause in your contract, you cannot be forced into arbitration unless you agree to be brought in. Sometimes the law requires arbitration though and, in those circumstances, you can be compelled. For example, if you are working on a State public work project, the Public Contract Code mandates arbitration as the dispute resolution process.
If the contract calls for arbitration as the dispute resolution procedure, it will oftentimes also specify the arbitration rules that will apply; i.e. JAMS, American Arbitration Association. The rules specified are the rules used, and if you sign the contract you agree to those rules. Sometimes those rules are not favorable or appropriate; disputes are never a one size fits all situation. Read the rules or talk to an attorney about them and be sure you are OK with them. If not, don’t sign the contract or else get the arbitration rules provision changed or removed.
The next thing that happens is when a dispute arises you will send or receive a demand for arbitration. If you are the one with the dispute and you want to be paid, but you don’t want to go to arbitration (assuming you have to), then file a lawsuit in the Superior Court. The other side will need to file a motion to Stay the court proceeding and they will then need an order compelling arbitration. If the other side does not do anything and instead answers the Complaint, good. Send discovery and begin the process as if you are going to trial. If the other side responds and acts as if they are also going to trial, then a court may conclude they waived the arbitration requirement. (You won’t be able to do this if it is a statutory arbitration process like the State Contract Act in the Public Contract Code.)
What’s the downside of arbitration if you do get stuck with the process?
First, all parties will need to agree on an arbitrator. This is the person that will hear the evidence, make the rulings, and issue the decision. Typically, the arbitrator is a retired judge or an experienced attorney who you hire. You can have a single arbitrator or a panel of 3 or 5 or more arbitrators. Whoever you use, check them out, get recommendations, get their rates, and find out how they ruled in other proceedings. If you don’t like what you hear, don’t use them.
Most arbitrations are heard by a single arbitrator and for good reason- these folks are not cheap. In fact, they can be quite expensive. The cost may be split among the parties, but it is still a good chunk of change if you want an experienced arbitrator. Expect to pay $8,000 - $12,000 per day or more for each arbitrator, and that’s for the hearing alone. There is also a case management fee and the arbitrator’s costs for handling any disputes that come up during the time between filing the demand for arbitration and the actual hearing, and for conferences that will need to be held as the case ramps up for the hearing.
The attorney preparation time for the arbitration, the discovery, the law and motion practice, the pre-hearing briefs, the evidence binders etc, are not any less than are required for a court trial. In fact, often arbitration can be more involved. Attorneys are not any less expensive in the arbitration process either. So unlike in court, you are paying for the attorney and the arbitrator too.
Then you have the hearing and it is not unusual for the hearing to extend beyond what the parties predicted. Why? Because the arbitrator is going to let almost anything come in. The arbitrator is not bound by the same evidence code restrictions that a judge is bound by in a trial. The arbitrator is going to allow you and your opponent to put on all of the evidence, even if it would be excluded in a trial. Most arbitrators don’t let the parties abuse that right, but they will allow the hearing to be extended so everyone can put on their case. All very well and good, except you are paying the arbitrator and your attorney for that additional time.
After the case is presented, the arbitrator may ask for briefing. He may allow final closing arguments. He will then issue a decision. If you win, good. If you lose, not so good. The big downside to arbitration is that except for really, really, reallylimited reasons, the arbitrator’s decision is final and cannot be appealed. It is what it is, and there is nothing you can do about it. If the arbitrator makes an error of law or does not make a correct ruling on the evidence, or allows evidence that should not be allowed, it does not matter. You have the decision and you are stuck with it.
So, what’s the alternative? The best alternative is not to agree to arbitration. If you want to get a less expensive but still appealable decision, ask for a bench trial if you have a judge that knows about your issue. A jury trial is also an option, but there too you take a chance. Juries can be really fickle and unpredictable. But in any court setting you have the right to appeal the decision, which is the best reason for not using arbitration. You want the opportunity to correct any wrong decision at the court of appeals level. Plus, the court process is not any more expensive than arbitration; it may even be cheaper (you don’t pay for the judge), and it is likely faster or as fast as arbitration.
Bottom line is the bottom line, and that is- arbitration is an expensive gamble that cannot be corrected and it often favors the well-heeled. Don’t do it if you don’t absolutely have to, it is just not worth it. The myth of arbitration as a fast and inexpensive alternative to court proceedings is just that – a myth. Don’t believe it.
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Bio: John McGill is an attorney representing contractors and suppliers throughout the Bay Area and Northern California in both private and public work disputes. He is the author of California Contractor’s DESKTOP GENERAL COUNSEL 3d ed What You Need To Know About California Construction Law. Contacts: 707 337 1932 jmcgill@mcgill-lawfirm.com